...Is a government – or economy – be said to be solvent as long as it has
enough land and buildings, roads, railroads, phone systems and other
infrastructure to sell off to pay interest on debts mounting exponentially?
Or should we think of solvency as existing under existing proportions in
our mixed public/private economies?
If populations can be convinced of the latter definition – as those of the
former Soviet Union were, and as the ECB, EU and IMF are now
demanding – then the financial sector will proceed with buyouts and
foreclosures until it possesses all the assets in the world, all the hitherto
public assets, corporate assets and those of individuals and partnerships....
Iceland made the capacity-to-pay principle the explicit legal basis for
international debt service.... After Iceland recovers, the Treasury offered
to guarantee payment for Britain for the period 2017-2023 up to 4 per
cent of the growth of GDP after 2008, plus another 2 per cent for the
Dutch. If there is no growth in GDP, there will be no debt service.
This meant that if creditors took punitive actions whose effect is to
strangle Iceland’s economy, they wouldn’t get paid.
No wonder the EU bureaucracy reacted with such anger.
It was a would-be slave rebellion.
Financial politics are now dominated by the drive to replace debt defaults
by running a fiscal surplus to pay bankers and bondholders. The financial
system wants to be paid. But mathematically this is impossible, because
the “magic of compound interest” outruns the economy’s ability to pay –
unless central banks flood asset markets with new bubble credit, as U.S.
policy has done since 2008.
When debtors cannot pay, and when the banks in turn cannot pay their
depositors and other counterparties, the financial system turns to the
government to extract the revenue from “taxpayers” (not the financial
sector itself). The policy bails out insolvent banks by plunging domestic
economies into debt deflation, making taxpayers bear the cost of banks
These financial claims are virtually a demand for tribute. And since 2010
they have been applied to the PIIGS countries. The problem is that
revenue used to pay creditors is not available for spending within the
economy. So investment and employment shrink, and defaults spread.
Something must give, politically as well as economically as society is
brought back to the “Copernican problem”: Will the “real” economy of
production and consumption revolve around finance, or will financial
demands for interest devour the economic surplus and begin to eat into
Technological determinists believe that technology drives. If this were so,
rising productivity would have made everybody in Europe and the United
States wealthy by now, rich enough to be out of debt. But there is a
Chicago School inquisition insisting that today’s needless suffering is
perfectly natural and even necessary to rescue economies by saving
their banks and debt overhead – as if all this is the economic core, not
wrapped around the core.
Meanwhile, economies are falling deeper into debt, despite rising
productivity measures. The seeming riddle has been explained many
times, but is so counter-intuitive that it elicits a wall of cognitive
dissonance. The natural view is to think that the world shouldn’t be this
way, letting credit creation load down economies with debt without
financing the means to pay it off. But this imbalance is the key dynamic
defining whether economies will grow or shrink.
John Kenneth Galbraith explained that banking and credit creation is so
simple a principle that the mind rejects it – because it is something for
nothing, the proverbial free lunch stemming from the principle of banks
creating deposits by making loans. Just as nature abhors a vacuum, so
most people abhor the idea that there is such a thing as a free lunch. But
the financial free lunchers have taken over the political system.
They can hold onto their privilege and avert a debt write-down only as
long as they can prevent widespread moral objection to the idea that the
economy is all about saving creditor claims from being scaled back to the
economy’s ability to pay – by claiming that the financial brake is actually
the key to growth, not a free transfer payment.....
No doubt the post-Soviet countries are watching, along with Latin
American, African and other sovereign debtors whose growth has been
stunted by predatory austerity programs imposed by IMF, World Bank
and EU neoliberals in recent decades. We should all hope that the post-
Bretton Woods era is over. But it won’t be until the Greek population
follows that of Iceland in saying no – and Ireland finally wakes up.
EU: Politics Financialized, Economies Privatized
May 26, 2011
By Michael Hudson
The public sector has been made dependent on commercial banks and bondholders. This is a bonanza for them, rolling back three centuries of attempts to create a mixed economy financially and industrially, by privatizing the credit creation monopoly as well as capital investment in public infrastructure monopolies now being pushed onto the sales block for bidders – on credit, with the winner being the one who promises to pay out the most interest to bankers to absorb the access fees (“economic rent”) that can be extracted.
Politics is being financialized while economies are being privatized. The financial strategy was to remove economic planning from democratically elected representatives, centralizing it in the hands of financial managers. What Benito Mussolini called “corporatism” in the 1920s (to give it its polite name) is now being achieved by Europe’s large banks and financial institutions – ironically (but I suppose inevitably) under the euphemism of “free market economics.”
Language is adopting itself to reflect the economic and political transformation (surrender?) now underway. Central bank “independence” was euphemized as the “hallmark of democracy,” not the victory of financial oligarchy.......
Michael Hudson on The NWO's
Neoliberal Rip-Off Economics
Financial and fiscal austerity policies; the appeal of economic austerity to
bankers; economic depression and war; post-WWII vs. post-cold war
economic policy; government to government grants vs. commercial lending;
the euro and dollar; privatization in New Zealand and elsewhere; social
unrest; speculation and prices; criminalization of the economy;
impoverishment of the US.
Pablo Picasso's Guernica is one of the most famous paintings of the 20th century, depicting the fascist bombing of the Basque capital in the north of Spain on April 26, 1937. The painting is well known, the tragedies of the Spanish Civil War less so, and almost entirely unknown is the fact that the Basque region of Spain is, today, the most prosperous part of the country, and a significant factor behind this is what's known as the Mondragón economic model.
The first time I'd heard of it was while reading this weekend William Greider's The Soul of Capitalism, a fascinating exploration into how to democratize the American economy. Now lest you think I am talking about 'socialism' or, worse, 'communism,' I am not. This is an entirely different take on good old-fashioned capitalism with the capital owned by the people who actually run the business: the workforce and managers. There are no outside shareholders; all of the capital in a business is owned by the people who work there; they are its sole investors. When you leave the company or retire, you take your shares of the business with you. Civil government also has no participation in the enterprise, unlike failed communism.
I learned about the 1980's BBC documentary below after posting some comments from Grieder's work on my Facebook page. I was taken by his remarks about the advantages of business self-ownership starting on page 84, especially the second argument: that it is necessary "to prevent an eventual economic and political crisis for the present system." Dennis Keim alerted me to the BBC documentary below after reading my comment.
Here is what I posted on Facebook from Soul of Capitalism:
As technology increasingly displaces labor in production processes, the depressing pressures on wage incomes intensify while the wealthy minority accumulates a still greater imbalance of power. The economic danger is an eventual failure of available demand when workers lack the incomes to purchase what the economic system can produce. When these conditions develop, the government will face unbearable pressures to enlarge the welfare state and to intervene more profoundly in the free-running economy.
For those of us here in America, look around you. Conservative "tea-partiers" are angry because they think the government is taking too much from them, while those who are suffering because of the increased consolidation of wealth and power into the hands of fewer and fewer people, want the government to intervene to compensate for what Greider argues above is the consequence of what is still, in effect, a feudal economic system. You'll have to read the opening chapters of Soul of Capitalism to fully appreciate how the fault lines of discontent in our current system can be found not only among blue collar workers, but also white collar managers and executives.
If you take the time to watch the documentary, you will probably ask what's transpired since it was produced in the early 1980s. An amateur video was shot within the last couple years of Georgia Kelley with the Praxis Peace Institute talking about her then-recent visit to Mondragón. When the BBC documentary was filmed, there were some 60 industrial and consumer cooperatives in the town. By the time of Ms. Kelly's visit, that had grown to 264 cooperative businesses, employing 100,000 workers and generating €24 billion in annual revenues. I would also encourage you to watch her talk, because it helps fill in some of the blanks left by the older BBC film.
Just as the Basques were able to recover from the devastations and privations of the Spanish Civil War and decades of Franco's dictatorship to build a thriving and equitable economic system where all share in the prosperity that is created by the hard work, thift and ingenuity of the people creating the wealth, I really think its time we take a serious look at the Mondragón model as a way to start to arrest the economic and political slide on which we find ourselves. But to do so, we are going to have to grow up and act with greater maturity, as well as empathy for others than we currently demonstrate. The success of the Mondragón model isn't so much about who owns the capital, as how they use it.
Seriously, this is important information, potentially revolutionary.
In suburban Buenos Aires, thirty unemployed auto-parts workers walk into their idle factory, roll out sleeping mats, and refuse to leave. All they want is to re-start the silent machines. With The Take, director Avi Lewis, one of Canada's most outspoken journalists, and writer Naomi Klein, author of the international bestseller No Logo, champion a radical economic manifesto for the 21st century. But what shines through in the film is the simple drama of workers' lives and their struggle: the demand for dignity and the searing injustice of dignity denied. http://thetake.org/
Thank you. It is nice to see that (financial) sense can also make sense as well as profits. _________________ The grand design, reflected in the face of Chaos.
Joined: 25 Sep 2006 Posts: 151 Location: Perth, Australia
Posted: Fri Jun 10, 2011 1:08 am Post subject:
I use to like reading & listening to Michael Hudson articles but this latest one where he explains the New Zealand economy is utter bullshit.
He to my mind has proved to be a typical big mouth yank who profess' to know everything about a country without having even visited it.
NZ is not like a basket case Baltic economy.
Its resources are not all privatised.
People are not all deserting the country.
He said the Labour government was a right wing Thatcher like government, when it is in fact the left wing, and it hasn't been in power since 2008. The right National government is in power at the moment.
Really pissed me off when he said that New Zealanders are so stupid.
Rich coming from a yank. _________________ "Any one who has the power to make you believe absurdities has the power to make you commit injustices." Voltaire
Kiwis hate it when I talk about the New Zealand economy. Sorry, mate, a Ponzi scheme is a Ponzi scheme. Most national economies are really just subsidiaries of the U.S. Mega Debt Death Machine now.
If you want to wind a Kiwi up, ask him or her which country is New Zealand’s second largest trading partner? DOH! That one smarts really bad. It’s the U.S.
Now, what does this have to do with all of these carry trade antics?
As the U.S. dollar collapses, that part about New Zealand’s second largest trading partner goes from being an embarrassing reality, that most Kiwis would rather not think about, to a national emergency.
Lots of dairy products wind up in the U.S., and meat, and kiwi fruit, and, and… If Americans go bust, A) who’s going to buy that stuff and B) what are they going to pay for it with?
What, then, happens to New Zealand’s ability to repay its debts, which are massive, relative to New Zealand’s size, without all those American Ponzi dollars?
This post is more for Kiwis than anyone else. I love New Zealand and I hope that the Kiwis who read Cryptogon are getting ready for what is going to happen. It’s going to be rough, but I wouldn’t want to be any other place in the world.
Peter - Thanks for the "Mondragon" reminder - I sure this is still the way to go!
Cooperative Corporation that DOESN'T maximize PROFITS!
10% goes to the community
20% is reinvested
70% goes proportionally to the worker/owner/share-holder's CAPITAL - which he/she can't touch until they leave, removing 100% of it.
(Highest paid NEVER gets more than 3 times the Lowest!!!!!)
How Bankers are using the Debt Crisis to
welcome in the Financial Road to Serfdom
June 14, 2011 - By Michael Hudson
Financial strategists do not intend to let today’s debt crisis go to waste.
Foreclosure time has arrived. That means revolution – or more
accurately, a counter-revolution to roll back the 20th century’s gains
made by social democracy: pensions and social security, public health
care and other infrastructure providing essential services at subsidized
prices or for free.
The basic model follows the former Soviet Union’s post-1991 neoliberal
reforms: privatization of public enterprises, a high flat tax on labor but
only nominal taxes on real estate and finance, and deregulation of the
economy’s prices, working conditions and credit terms.
What is to be reversed is the “modern” agenda. The aim a century ago
was to mobilize the Industrial Revolution’s soaring productivity and
technology to raise living standards and use progressive taxation, public
regulation, central banking and financial reform to distribute wealth fairly
and make societies more equal. Today’s financial aim is the opposite: to
concentrate wealth at the top of the economic pyramid and lower labor’s
returns. High finance loves low wages.....
In general, big is bad. Centralized is bad. Whether it’s public or private doesn’t matter.
Now, when it comes to something like a municipal sewer system, or other infrastructure assets where competition isn’t possible, handing those assets over to private corporations should be considered treason, and the politicians responsible should be arrested. (Don’t hold your breath.)
There’s a big difference between using private contractors for something like janitorial services at a city hall, for example, and handing over a city’s critical infrastructure to some corporation. With janitorial services, there’s going to be a lot of competition to do that work. With something like a municipal sewer system, on the other hand, how many competing sets of underground pipes, pumping stations, water filtration systems, effluent tanks, etc. are there going to be? If there’s only one option, and that thing was built with pubic money, it has to be run in the interest of the people who paid for it, the taxpayers.
It’s worth keeping in mind that markets can fail to operate efficiently even when multiple corporations are allegedly competing.
There are many examples of astonishing collusion amongst several corporations to fix prices. Here are a few recent examples:
I keep coming back to Kiwibank in New Zealand. Before Kiwibank, several Australian banks were colluding to screw New Zealanders raw. It took a government owned bank to give New Zealanders a non-rape option for banking. That’s right! The best deal for banking services in New Zealand is offered by a government entity. If you want to pay more, feel free to use one of the Aussie banks.
Does this mean that governments should be in the business of manufacturing vitamins or remote control cars or hunting knives? Of course not. Where there are dozens or hundreds of options, there’s no way that the government would win. But when an outlaw cartel has formed in an area as critical as banking, when there is no option available to people outside the cartel, this is one of the few areas where a government can actually improve the situation.
So, in my opinion, ensuring that markets are running efficiently is one of the handful of legitimate roles of government. And in areas where a market solution is not possible—as with large municipal infrastructure assets—the role of government should be to stop private interests from turning a place into a company town.
Via: Dylan Ratigan:
In Chicago, it’s the sale of parking meters to the sovereign wealth fund of Abu Dhabi. In Indiana, it’s the sale of the northern toll road to a Spanish and Australian joint venture. In Wisconsin it’s public health and food programs, in California it’s libraries. It’s water treatment plants, schools, toll roads, airports, and power plants. It’s Amtrak. There are revolving doors of corrupt politicians, big banks, and rating agencies. There are conflicts of interest. It’s bipartisan.
And it’s coming to a city near you — it may already be there. We’re talking about the sale of public assets to private investors. You may have heard of one-off deals, but what we’ll be exploring with the Huffington Post is the scale and scope of what is a national and organized campaign to shift the way we govern ourselves. In an era of increasingly stretched local and state budgets, privatization of public assets may be so tempting to local politicians that the trend seems unstoppable. Yet, public outrage has stopped and slowed a number of initiatives.
While there are no televised debates around this issue, there is no polling, and there are no elections, who wins it will determine the literal shape of modern America. The Dylan Ratigan show is teaming up with the Huffington Post to do a three part series called “America for Sale”, showing the pros and cons, and the politics and economics, of a new and far more privatized government.
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